International Financial Management Exam Practice Tests
Course Introduction
International Financial Management explores the principles and practices essential to managing financial operations in a global context. The course covers topics such as foreign exchange markets, risk management, international investment and financing decisions, multinational capital budgeting, and working capital management. Students will analyze how global financial environments, political risks, and currency fluctuations impact the financial strategies of multinational corporations. Through case studies and real-world examples, learners will develop the skills to evaluate and apply financial tools and techniques for effective decision-making in international finance.
Recommended Textbook
Multinational Business Finance 13th Edition by David K. Eiteman
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20 Chapters
1145 Verified Questions
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Page 2
Chapter 1: Current Multinational Challenges and the Global Economy
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Sample Questions
Q1) Ownership, control, and governance changes radically across the world. The publicly traded company is not the dominant global business organization-the privately held or family-owned business is the prevalent structure-and their goals and measures of performance differ dramatically.
A)True
B)False
Answer: True
Q2) Relative to MNEs, purely domestic firms tend to have GREATER political risk.
A)True
B)False
Answer: False
Q3) In determining why a firm becomes multinational there are many reasons. One reason is that the firm is a market seeker. Which of the following is NOT a reason why market-seeking firms produce in foreign countries?
A)satisfaction of local demand in the foreign country
B)satisfaction of local demand in the domestic markets
C)political safety and small likelihood of government expropriation of assets
D)All of the above are market-seeking activities.
Answer: C
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Chapter 2: Corporate Ownership, Goals, and Governance
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Sample Questions
Q1) The Board of Directors:
A)consists exclusively of the officers of the corporation.
B)is the legal body which is accountable for the governance of the corporation.
C)are not subject to the external forces of the marketplace.
D)is appointed by the Securities and Exchange Commission (SEC).
Answer: B
Q2) The number of publicly traded firms:
A)peaked in the U.S. in 1996.
B)peaked worldwide in 1996.
C)increased significantly in 2009 as a result of the international financial crisis.
D)all of the above
Answer: A
Q3) The stakeholder capitalism model does not assume that equity markets are either efficient or inefficient.
A)True
B)False
Answer: True
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4
Chapter 3: The International Monetary System
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Sample Questions
Q1) Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, countries with "fixed exchange rates" are considered to have:
A)a residual agreement.
B)soft pegs.
C)hard pegs.
D)floating arrangements.
Answer: B
Q2) Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, currencies that are predominantly market-driven are considered to be:
A)soft pegs.
B)hard pegs.
C)floating arrangements.
D)a residual agreement.
Answer: C
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Chapter 4: The Balance of Payments
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Sample Questions
Q1) Which of the following would NOT be considered a typical BOP transaction?
A)Toyota U.S.A. is a U.S. distributor of automobiles manufactured in Japan by its parent company.
B)The U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in Zurich.
C)A U.S. tourist purchases gifts at a museum in London.
D)All are example of BOP transactions.
Q2) The authors identify a tip for understanding BOP accounting. They recommend that you "follow the cash flow."
A)True
B)False
Q3) The largest single component of the United States current account is:
A)current transfers.
B)income payments and receipts.
C)goods (merchandise)imports and exports.
D)services imports and exports.
Q4) What is the Official Reserves Account (ORA), and why is it more important for countries under a fixed exchange rate regime than for ones under a floating exchange rate regime?
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Chapter 5: The Continuing Global Financial Crisis
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Sample Questions
Q1) The authors conclude the chapter with a specific road map for future financial regulation.
A)True
B)False
Q2) As of 2011, the European countries with the highest debt/GDP ratio were, in order:
A)Greece, Italy, Portugal, and Slovenia.
B)Greece, Italy, France, and Germany.
C)Greece, Italy, Ireland, and Portugal.
D)Greece, Italy, Great Britain, and Portugal.
Q3) It is pretty clear after reading this chapter that securitization in and of itself is a poor financial idea.
A)True
B)False
Q4) Asset-backed securities (ABSs)may be securitized based on:
A)auto loans.
B)home-equity loans.
C)credit card receivables.
D)all of the above
Q5) What is TARP? Provide an argument for why TARP was necessary and successful.
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Chapter 6: The Foreign Exchange Theory and Markets
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Sample Questions
Q1) Dealers in the foreign exchange departments of large international banks often function as "market makers." Such dealers stand willing at all times to buy and sell those currencies in which they specialize and thus maintain an "inventory" position in those currencies.
A)True
B)False
Q2) Banks, and a few nonbank foreign exchange dealers, operate ONLY in the interbank markets.
A)True
B)False
Q3) The greatest amount of foreign exchange trading takes place in the following three cities:
A)New York, London, and Tokyo.
B)New York, Singapore, and Zurich.
C)London, Frankfurt, and Paris.
D)London, Tokyo, and Zurich.
Q4) What are some of the reasons central banks and treasuries enter the foreign exchange markets, and in what important ways are they different from other foreign exchange participants?
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Chapter 7: International Parity Conditions
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Sample Questions
Q1) Consider the price elasticity of demand. If a product has price elasticity less than one it is considered to have relatively elastic demand.
A)True
B)False
Q2) Assume the current U.S. dollar-British spot rate is 0.6993£/$. If the current nominal one-year interest rate in the U.S. is 5% and the comparable rate in Britain is 6%, what is the approximate forward exchange rate for 360 days?
A)£1.42/$
B)£1.43/$
C)£0.6993/$
D)£0.7060/$
Q3) If the forward exchange rate is an unbiased predictor of future spot rates, then future spot rates will always be equal to current forward rates.
A)True
B)False
Q4) The Fisher Effect is a familiar economic theory in the domestic market. In words, define the Fisher Effect and explain why you think it is also appropriately applied to international markets.
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Page 9
Chapter 8: Foreign Currency Derivatives and Swaps
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Sample Questions
Q1) Refer to Table 8.1. What was the closing price of the British pound on April 18, 2009?
A)$1.448/£
B)£1.448/$
C)$14.48/£
D)none of the above
Q2) Your firm is faced with paying a variable rate debt obligation with the expectation that interest rates are likely to go up. Identify two strategies using interest rate futures and interest rate swaps that could reduce the risk to the firm.
Q3) A basis point is one-tenth of one percent.
A)True
B)False
Q4) Assume that a call option has an exercise price of $1.50/£. At a spot price of $1.45/£, the call option has:
A)a time value of $0.04.
B)a time value of $0.00.
C)an intrinsic value of $0.00.
D)an intrinsic value of -$0.04.
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10
Chapter 9: Foreign Exchange Rate Determination and Forecasting
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Sample Questions
Q1) Leading up to the Russian currency collapse of 1998, Russia followed a currency policy of managed float that allowed their currency to slide daily at a 1.5% per month rate.
A)True
B)False
Q2) Which of the following did NOT contribute to the exchange rate collapse in emerging markets in the 1990s?
A)infrastructure weaknesses
B)speculation on the part of market participants
C)the sharp reduction of cross-border foreign direct investment
D)All of the above contributed to the emerging markets exchange rate collapse of the 1990s.
Q3) Most theories of technical analysis differentiate fair value from market value.
A)True
B)False
Q4) The Asian Currency crisis appeared to begin in:
A)South Korea.
B)Taiwan.
C)Thailand.
D)Japan.
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Chapter 10: Transaction Exposure
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Sample Questions
Q1) Managers CAN outguess the market. If and when markets are in equilibrium with respect to parity conditions, the expected net present value of hedging should be POSITIVE.
A)True
B)False
Q2) Hedging can be advantageous to shareholders because management is in a better position than shareholders to recognize disequilibrium conditions and to take advantage of single opportunities to enhance firm value through selective hedging.
A)True
B)False
Q3) Assuming no transaction costs (i.e., hedging is "free"), hedging currency exposures should ________ the variability of expected cash flows to a firm and at the same time, the expected value of the cash flows should ________.
A)increase; not change
B)decrease; not change
C)not change; increase
D)not change; not change
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Chapter 11: Translation Exposure
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Sample Questions
Q1) A foreign subsidiary's ________ currency is the currency used in the firm's day-to-day operations.
A)local
B)integrated
C)notational dollar
D)functional
Q2) : The current rate method and the temporal method are two basic methods for translation that are employed worldwide
A)True
B)False
Q3) Under U.S. accounting and translation practices, use of the current rate method is termed ________ while use of the temporal method is termed ________.
A)translation; the same
B)translation; remeasurement
C)remeasurement; the same
D)remeasurement; translation
Q4) Describe a balance sheet hedge and give at least two examples of when such a hedge could be justified.
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13
Chapter 12: Operating Exposure
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Sample Questions
Q1) A ________ occurs when two business firms in separate countries arrange to borrow each other's currency for a specified period of time.
A)natural hedge loan
B)forward loan
C)currency switch loan
D)back-to-back loan
Q2) When disequilibria in international markets occur, management can take advantage by:
A)doing nothing if they are already diversified and able to realize beneficial portfolio effects.
B)recognizing disequilibria faster than purely domestic competitors.
C)shifting operational of financing activities to take advantage of the disequilibria.
D)all of the above
Q3) Which of the following is NOT an example of a financial cash flow?
A)parent invested equity capital
B)interest on intrafirm lending
C)payment for goods and services
D)intrafirm principal payments
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14
Chapter 13: The Global Cost and Availability of Capital
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Sample Questions
Q1) Empirical studies indicate that MNEs have a lower debt/capital ratio than domestic counterparts, indicating that MNEs have a lower cost of capital.
A)True
B)False
Q2) Surprisingly, empirical studies find that MNEs have a higher level of systematic risk than their domestic counterparts.
A)True
B)False
Q3) The primary goal of both domestic and international portfolio managers is:
A)to maximize return for a given level of risk, or to minimize risk for a given level of return.
B)to minimize the number of unique securities held in their portfolio.
C)to maximize their WACC.
D)all of the above
Q4) The WACC is usually used as the risk-adjusted required rate of return for new projects that are of the same average risk as the firm's existing projects.
A)True
B)False
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15
Chapter 14: Raising Equity and Debt Globally
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Sample Questions
Q1) Strategic alliances are normally formed by firms that expect to gain synergies from which of the following?
A)economies of scale
B)economies of scope
C)complementary marketing
D)all of the above
Q2) Moody's rates international bonds at the request of the issuer with the stipulation that Moody's will publish the ratings even if the ratings are unfavorable.
A)True
B)False
Q3) Which of the following is NOT an advantage of ADRs to U.S. shareholders?
A)Transfer of ownership is done in the U.S. in accordance with U.S. laws.
B)In the event of the death of the shareholder, the estate does not go through a foreign court.
C)Settlement for trading is generally faster in the United States.
D)All of the above are advantages of ADRs.
Q4) What are the two schools of thought regarding the worldwide trend toward increased financial disclosure by publicly traded firms. Explain which school of thought you hold to and why.
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Chapter 15: Multinational Tax Management
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Sample Questions
Q1) Tax credits are LESS valuable on a dollar-for-dollar basis than are deductible expenses.
A)True
B)False
Q2) A tax that is a form of social redistribution of income is defined as a/an ________ tax.
A)un-American
B)transfer
C)flat
D)none of the above
Q3) Tax haven subsidiaries of MNEs are categorically referred to as international offshore financial centers.
A)True B)False
Q4) The territorial approach, also referred to as the source approach to tax policy, levies taxes on the income earned by firms that are incorporated in the host country, regardless of where the income was earned (domestically or abroad).
A)True B)False
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Chapter 16: International Portfolio Theory and Diversification
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Sample Questions
Q1) Refer to Instruction 16.1. At the end of the year the investor sells his stock that now has an average price per share of 57. What is the investor's average rate of return after converting the stock back into dollars?
A)-1.35%
B)5.0%
C)-5.0%
D)-7.24%
Q2) Capital markets around the world are on average less integrated today than they were 20 years ago.
A)True
B)False
Q3) International diversification benefits may induce investors to demand foreign securities.
A)True
B)False
Q4) The standard deviation of a portfolio is the sum of the weighted average standard deviations of the individual assets.
A)True
B)False
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) List and explain three strategic motives why firms become multinationals and give an example of each.
Q2) The speed at which inventory moves through a manufacturing process is known as:
A)supply chain management.
B)working capital management.
C)inventory velocity.
D)warp speed.
Q3) What are blocked funds? List and explain two of the three methods the authors list in this chapter for dealing with blocked funds.
Q4) Many problems such as poverty, environmental concerns, and cyber attacks are beyond the capabilities of MNEs alone to correct and require government participation as well.
A)True
B)False
Q5) Which of the following is NOT an advantage to a joint venture?
A)Possible loss of opportunity to enter the foreign market with FDI later.
B)The local partner understands the customs and mores of the foreign market.
C)The local partner can provide competent management at many levels.
D)May be a realistic alternative when 100% foreign ownership is not allowed.
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Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Q1) Of the following capital budgeting decision criteria, which does NOT use discounted cash flows?
A)net present value
B)internal rate of return
C)accounting rate of return
D)All of these techniques typically use discounted cash flows.
Q2) For purposes of international capital budgeting, parent cash flows often depend on the form of financing. Thus, we cannot clearly separate cash flows from financing decisions, as we can in domestic capital budgeting.
A)True
B)False
Q3) Currency risk is a concern for any international merger and acquisition activity. For instance, once the bidder has successfully won the acquisition, the exposure evolves from a transaction exposure to a contingent exposure.
A)True
B)False
Q4) Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.
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Chapter 19: Working Capital Management
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Sample Questions
Q1) Unbundling of funds by an MNE may be a useful practice for which of the following reasons?
A)An increase in the funds flow (charges)in any of the before-tax categories reduces the taxable profits of the foreign subsidiary if the host-country tax authorities acknowledge the charge as a legitimate expense.
B)An item-by-item matching of remittance to input, such as royalties for intellectual property, and fees for patents and advice, is equitable to the host country and foreign investor alike.
C)Unbundling facilitates allocation of overhead from a parent''s international division, so-called shared services, to each operating subsidiary in accordance with a predetermined formula.
D)All of the reasons listed above
Q2) Political risk may motivate parent firms to require foreign subsidiaries to remit all locally generated funds above that required to internally finance growth in sales and planned capital expansions.
A)True B)False
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Chapter 20: International Trade Finance
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Sample Questions
Q1) A sight draft is payable on presentation to the drawee; a time draft allows a delay in payment.
A)True
B)False
Q2) Which of the following relationships between importing and exporting parties would require the least detailed contract to conduct business?
A)affiliated party
B)unaffiliated unknown party
C)known unaffiliated party
D)domestic supplier
Q3) To constitute a true letter of credit transaction, the issuing bank must receive a fee or other valid business consideration for issuing the L/C.
A)True
B)False
Q4) Because of the risks involved in international trade, most transactions follow conventional methods and rarely require flexibility or creativity on the part of management.
A)True
B)False
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